Imperial Brands - Tobacco Reporter

Bristol Mayor Vetoes ‘Navy Cut’ Road

Bristol Mayor Marvin Rees vetoed naming a South Bristol road after a tobacco product following pushback from Action on Smoking and Health (ASH), reports Bristol Live.

The road was set to be named Navy Cut Road after a brand produced by the Imperial Brands tobacco factory that formerly occupied that area. After ASH said that was “morally unacceptable,” however, Rees vetoed the name in favor of naming the road after Florence Mills Brown, the first female lord mayor.

Councilor Richard Eddy criticized the move, saying that Mayor Rees is “imposing” his will on the citizens of the area.

“Having served on Bristol City Council for 30 years, it does not escape me that, contrary to all previous practice, your team is not seeking the views of my local community and its elected councilors on a proposed street-naming within my neighborhood,” Eddy wrote in an email.

“Whilst I’m sure former Lord Mayor Florence Brown was a creditworthy woman, why name a road here after a Labour politician who represented two wards miles away in North Bristol and has no discernible links to Bishopsworth?

“This is not just a small disagreement over street naming in a southern city suburb, but it goes to the heart of the debate about whether Bristol should be ruled by one man with a ‘God complex’ or whether local communities and their duly elected councilors should determine their own destinies.”

December 8, 2022

Bomhard: Imperial Gaining Traction

Imperial Brands reported net revenue of £32.55 billion ($38.93 billion) for its fiscal year 2022, which ended Sept. 30. The figure was down 0.7 percent from 2021. Operating profit declined 14.7 percent to £2.68 billion. On an adjusted basis, net revenue was up 2.7 percent to £7.79 billion while operating profit increased 3.5 percent to £3.69 billion.

Imperial Brands insisted its five-year strategy is on track and delivering improved operational performance. The company’s aggregate market share in its top-five combustible markets was up 35 base points, reflecting Imperial’s first annual share gain in more than five years. Net revenue from next-generation products was up 11 percent driven by market launches in all categories. The company also reported increased shareholder returns with 1.5 percent growth in dividend enhanced by an ongoing £1 billion share buyback.

“In line with our five-year strategy, increased investment and a more consumer-centric approach have improved delivery in both our priority combustible markets and our next-generation product operations,” said Imperial Brands CEO Stefan Bomhard in a statement. “At the same time, disciplined capital allocation has strengthened our balance sheet to reach our target leverage. This has enabled us to enhance shareholder returns through an ongoing share buyback program alongside a progressive dividend.

“In tobacco, a sharper focus on brand building and sales execution has supported aggregate market share gains in our top five priority markets. Price mix improved in the second half, helping to offset the anticipated acceleration in volume declines, which occurred as borders reopened, prompting a return to pre-Covid buying patterns.

“In NGP, successful consumer trials have validated our approach, and we are now stepping up investment in new product and market launches across all three product categories. Our heated-tobacco proposition, Pulze and iD, continued to perform well in our pilot markets of Czech Republic and Greece, and we have recently launched in Portugal, Hungary and Italy, the largest European market for this category. Following the successful French trial of our new vapor device, Blu 2.0, we have now launched in the U.K. In modern oral, we expanded our range of flavors for Zone X in key markets and successfully introduced the Zone X format into Norway.

“Looking ahead, we are well positioned to deliver against the next phase of our five-year strategy. The additional investment and the actions we have taken during the initial two-year strengthening phase have built stronger foundations as we face into a more challenging macroeconomic environment. We are well placed to build on our track record of delivery over the next three years, improving returns and creating sustainable growth in shareholder value.”

November 15, 2022

Shares Sold in Imperial’s Former Russia Unit

Russian businessman Sergei Katsiev has acquired a 15 percent stake in International Tobacco Group, the former Russian subsidiary of Imperial Brands, reports Interfax, citing data from the Unified State Register of Legal Entities (USRLE).

In March, Imperial Brands announced that it was suspending operations in Russia, including production at its factory in Volgograd, sales and marketing, in response to Russia’s military assault on Ukraine. In April, the company said it had transferred its business in Russia to local investors.

Earlier this year, Imperial Tobacco Sales and Marketing and Imperial Tobacco Volga were renamed International Tobacco Group and International Tobacco Group Volga, respectively.

According to the USRLE, Nikolai Tyaka owns 75 percent of International Tobacco Group and International Tobacco Group Volga.

Following the Feb. 24 invasion, international cigarette manufacturers announced they would end their operations in Russia, but retreating from such a major market is easier said than done. Tobacco companies have had to carefully navigate shifting regulations and avoid missteps that could prompt the government to seize the business, for example—all the while trying to protect employees from becoming targets for arrest.

Tax payments by the leading international cigarette manufacturers have provided the Russian government with at least $7.25 billion in additional income since President Vladimir Putin ordered his army to attack Ukraine, according to an analysis of Russian Treasury figures conducted by The Telegraph.

Because Russia and Ukraine were relatively small markets for Imperial Brands, representing around 2 percent of net revenues and 0.5 percent of adjusted operating profit in 2021, the company may have found it easier to extract itself from Russia than some of its larger competitors.

November 9, 2022

Imperial Launches Blu 2.0 in U.K.

Imperial Brands has launched Blu 2.0, a new vaping device that replaces its existing Myblu system, in the U.K., reports The Grocer.

According to Imperial Brands, the new product offers a smoother and richer vaping experience due to its ceramic heating pod technology, which replaces the previously used cotton wick option. It also features a longer-lasting battery and bigger 1.9 mL volume liquid pods.

The new device also comes with a magnetic lock feature and “power tap,” which enables users to easily check the battery level.

Imperial has also launched a new range of six flavored liquids for use with the system: Golden Tobacco, Polar Menthol, Fresh Mint, Berry Mix, Blueberry Ice and Fresh Mango. All come in 9 mg and 18 mg nicotine strength variants.

“Through the launch of Blu 2.0, we’ve developed a product that looks better, tastes better and lasts longer than before to provide consumers with the next-generation vape product they’re looking for,” said Tom Gully, Imperial Tobacco’s head of consumer marketing for the U.K. and Ireland.

October 31, 2022

Imperial Announces Share Buyback

Imperial Brands has announced the start of a multi-year share buyback program.

The company intends to repurchase up to £1 billion ($1.12 billion) of shares between Oct. 7, 2022, and the end of September 2023. This would represent approximately 5.5 percent of the issued share capital of Imperial Brands based on the Oct. 5, 2022, market close.

“The launch of our new buyback program is an important milestone in our five-year strategy announced in January 2021,” said Imperial Brands CEO Stefan Bomhard in a trading update. “Over the past two years, increased investment and a more consumer-centric approach have improved delivery in both our priority combustible markets and next-generation product operations. Disciplined capital allocation has strengthened our balance sheet to reach our target leverage levels.

“Today’s announcement is underpinned by this improving performance and our confidence in being able to continue generating strong cash flows to support growing shareholder returns in the years to come,” Bomhard added. “We are committed to a progressive dividend and an ongoing buyback program to meaningfully reduce the capital base over time.”

According to Imperial Brands, trading in the year has been in line with expectations. Targeted investment in the company’s five largest combustible markets (which account for around 70 percent of operating profit) has driven an improvement in aggregate market share.

A stronger price mix accelerated the growth rate of tobacco net revenue at constant currency exchange rates in the second half of fiscal 2022. The recovery of international travel has led to a return to pre-Covid purchasing patterns, with increased volume declines, particularly in Northern Europe, partly offset by volume growth in Southern Europe and duty-free.

Imperial Brands reported good progress in implementing its refreshed next-generation product strategy. The company’s Pulze and iD tobacco-heating products debuted in Italy, Europe’s largest heated-tobacco market, while gaining market share in Greece and the Czech Republic. The company says its new Blu 2.0 pod-based vapor device was well received during a consumer trial in France.

Imperial Brands will report its annual results for the year ended Sept. 30, 2022, on Nov. 15, 2022.

October 6, 2022

Keating to lead Imperial’s U.K./Ireland Corporate Affairs

Imperial Tobacco has appointed Lindsay Mennell Keating as head of corporate and legal affairs for the U.K. and Ireland, reports Talking Retail.

Previously, Keating held the positions of head of corporate affairs EU and senior government affairs manager at Imperial Tobacco. Prior to joining the business in 2014, she worked as a public affairs and communications consultant in Brussels.

“I am delighted to be heading up the corporate and legal affairs team at Imperial Tobacco and welcome the opportunity to work closely with our trade partners as the tobacco and next-generation categories continue to evolve,” said Keating.

“The government’s forthcoming Tobacco Control Plan will present a period of regulatory change, and I look forward to building on our existing networks to ensure our customers are in a strong position to successfully manage these changes.”

August 22, 2022

Philip Morris To Produce at Imperial’s Kyiv Plant

Philip Morris Ukraine will start producing some of its cigarettes at Imperial Tobacco’s factory in Kyiv this month, following a deal between the two companies, reports Interfax Ukraine.

The arrangement allows Philip Morris to continue supplying customers even as production at its Kharkiv factory remains suspended in the wake of Russia’s military invasion. It also enables Imperial Tobacco to better utilize its production capacity, some of which has been idle due to the difficulty of exporting cigarettes.

“Since the beginning of the war, we have been looking for alternative ways to ensure the supply of products,” said Philip Morris Ukraine Managing Director Maksym Barabash. “We are very pleased that we have found a mutually beneficial solution with Imperial Tobacco, which will produce products in accordance with PMI’s high-quality standards. For Philip Morris, this is a temporary measure. We hope that we will be able to resume production at our Kharkiv factory as soon as it becomes safe for workers.”

“The Imperial Tobacco factory in Kyiv has a significant production potential and a strong professional team to ensure the production of additional volumes of products with high quality and in the right time,” said Halyna Vorobyova, head of Imperial Tobacco’s board in Ukraine. “Since the beginning of the war, our company cannot carry out export deliveries; therefore, the agreement with Philip Morris will allow us to load our capacity.”

Philip Morris employed about 1,300 people prior to the war. Its Kharkiv factory exported cigarettes to more than 20 countries, including major markets such as Japan and Egypt.

August 3, 2022

Fortuna Possible New Owner Imperial’s Russian Business

Fortuna Cigar House (FCH) could become the new owner of Imperial Brands’ Russian business, according to an Interfax report citing the Kommersant newspaper.

Following Russia’s military invasion of Ukraine, several tobacco companies said they would scale back their operations in Russia. On April 20, Imperial Brands announced the transfer of its Russian business to local investors, subject to finalization of the registration of the transaction with local authorities. The company estimates a noncash write-off of around £225 million ($279.86) for this transaction.

Founded in Odessa in 1999, FCH has been operating in Russia since 2011 as a joint venture with the distributor Megapolis, which was previously associated with Russian tobacco mogul Igor Kesaev. The company sells cigars, tobacco, smoking accessories and materials and equipment. It also has its own retail outlet.

According to SPARK-Interfax, 50.01 percent of FCH belongs to Megapolis, and 49.99 percent belongs to BVG Cigar House Fortuna of Cyprus. In 2021, FCH posted revenue of RUR4.09 billion ($67.12 million) and a net profit of RUR404 million.

In March, Imperial Brands said it was suspending operations in Russia, including production at its factory in Volgograd, as well as sales and marketing. The company then began talks with a Russian legal entity on transferring the business.

Imperial Brands operates in Russia through Imperial Tobacco Volga, the production entity, and Imperial Tobacco Sales and Marketing. The company has held around 5.5 percent of the Russian tobacco market, according to business analysts cited by Kommersant.

Tobacco analysts Maxim Korolyov told Kommersant that Imperial Brands’ products will likely continue to be produced in Russia under a temporary license.

April 28, 2022

Imperial to Transfer its Russian Business

Imperial Brands today announced the transfer of its Russian business to investors based in Russia, subject to finalization of the registration of the transaction with local authorities, which is expected to take place shortly.

The transaction aligns with the company’s desire to divest its entire Russian operation as a going concern in order to provide the best outcome for its 1,000 Russian employees.

Imperial Brands’ Russian operations include a sales and marketing business, and a factory in Volgograd.

“We continue to support our Ukrainian colleagues and their families, including with transport and accommodation to enable them to escape the areas most heavily affected by war, and resettlement assistance for those who have left Ukraine,” the company wrote in an update.

Imperial Brands said its previous guidance on the financial impact of its exit from Russia and suspension of our Ukraine operations remains unchanged.

In fiscal year 2021, Russia and Ukraine represented in total around 2 percent of Imperial Brands’ net revenues and 0.5 percent of adjusted operating profit. The company anticipates a non-cash write off of around £225 million ($293.78 million) for this transaction, which it expects to be treated as an adjusting item.

April 21, 2022

Heading for the Exit

Following Russia’s invasion of Ukraine, tobacco companies to retreat from one of the world’s top cigarette markets.

By Stefanie Rossel

Amid growing pressure, the four leading international tobacco manufacturers have joined the exodus of U.S. and European companies that has followed Russia’s invasion of Ukraine. In early March, after the United States, the European Union and Great Britain imposed economic sanctions, all major cigarette makers announced that they would suspend operations or pull out of Russia altogether—although some did so less enthusiastically than others.

After initially announcing it would merely suspend its planned capital investments in Russia, BAT quickly made a U-turn, signaling a far greater retreat. On March 11, the company announced that its ownership of the business in Russia was no longer sustainable in the current environment, which it described as “highly complex, exceptionally fast-moving and volatile.” BAT is in advanced talks to transfer its Russian business to the SNS group of companies, its distributor in the country since 1993. According to SNS, the level of production and the supply and distribution chain would be maintained with a transfer. As a result of the withdrawal, BAT reduced its annual revenue growth outlook to between 2 percent and 4 percent from the 3 percent to 5 percent announced in February.

BAT’s move came a day after a Russian government commission approved the first step toward nationalizing the assets of departing foreign companies. On March 10, Russia’s economic development ministry published a draft bill that would give state-owned Vnesheconombank and the state export guarantee agency the right to seize the property of foreign firms that left Russian markets of their own accord. The proposed law would treat a corporate decision to exit the business as a criminal bankruptcy and empower authorities to initiate criminal justice proceedings against local management, BAT Chief Marketing Officer Kingsley Wheaton told Reuters in an interview.

After announcing plans to scale down its operations in Russia on March 9, Philip Morris International in late March specified the concrete steps it would take, saying it was working on options to exit the Russian market “in an orderly manner.” The company stated that it had discontinued some of its cigarette brands offered in the market and suspended its marketing activities. Furthermore, it had canceled all product launches planned for this year in Russia, including the introduction of its new tobacco-heating product (THP), IQOS Iluma, and its plans to manufacture more than 20 billion Terea sticks, the consumables for IQOS Iluma. Production of the latter would have involved an ongoing investment of $150 million, which the company also canceled.

JTI, meanwhile, limited its withdrawal from Russia to a suspension of all new investments and marketing activities along with the launch of its most recent THP, Ploom X.

Imperial Brands, which has a relatively small footprint in Russia, announced on March 15 that it had started negotiations with a local third party about a transfer of its Russian assets of operations. “We believe that, in the current circumstances, an orderly transfer of our business as a going concern would be in the best interests of our Russian colleagues,” Imperial Brands wrote in a statement.

In addition to their actions in Russia, all four cigarette manufacturers temporarily closed their production sites in Ukraine to protect their workforce and have pledged to continue paying the salaries of employees in the affected countries.

Between a Rock and a Hard Place

In deciding their course of action, cigarette manufacturers faced a dilemma of choosing either to leave and protect their reputations or to stay and continue to benefit from the world’s fourth-largest tobacco market.

The decision to leave not only has financial consequences, but it also presents practical challenges, according to Jon Fell, partner at Ash Park Capital. “It’s one thing to say, ‘we’re no longer going to send our luxury handbags or fashionable training shoes to Russia,’ but if, in addition to factories or distribution centers, you have hundreds or thousands of employees in the country—who up until now have been seen as an integral part of your international company—then you have to take difficult and complex decisions, and there’s no obvious easy, right answer,” he says.

“Sorting the mess out takes time, and you can’t just abandon employees,” adds Fell. “I don’t think the approach of the tobacco industry overall is very different to that of other consumer packaged goods companies, quite a few of whom are continuing to operate in Russia right now—and drawing criticism because of that.”

Russian cigarette makers sold 206 billion cigarettes with an estimated value of $717 billion in 2020, according to Euromonitor International. The market has been declining at a 6 percent compound annual rate over the past 10 years and almost 7 percent over the past five years.

At the same time, the country has developed into a promising market for THPs, which, according to Moningstar, accounted for 11 percent of the total tobacco market in 2021, making the country one of the largest markets for these products outside of Asia.

With a volume share of 38 percent in 2021, JTI has the greatest exposure to Russia of the tobacco multinationals, according to Euromonitor. The company, which in 2018 acquired Donskoy Tabak, has four factories and 4,000 employees in the country. It has invested over $4.6 billion in the past 20 years. In 2020, its tax payments accounted for 1.4 percent of Russia’s state budget. Russia represented almost 16 percent of group volume in 2021, according to Morningstar.

It’s one thing to say, ‘we’re no longer going to send our luxury handbags or fashionable training shoes to Russia,’ but if, in addition to factories or distribution centers, you have hundreds or thousands of employees in the country, then there’s no obvious easy, right answer.

Jon Fell, partner at Ash Park Capital

Costly Exits

For PMI, Russia accounted for almost 10 percent of cigarette and THP unit shipment volume and around 6 percent of its total net revenues in 2021. With a market share of 26 percent, the company has three factories, more than 100 sales outlets and approximately 4,100 employees in the country. Ukraine, where PMI runs a factory in Kharkiv with around 1,300 employees, represents about 13 percent of PMI’s regional volume and contributed almost 2 percent to PMI’s total net revenues in 2021.

Morningstar expects PMI’s tobacco volume from Eastern Europe to decline by 45 percent in 2022 with a slow recovery thereafter as the collapse of the ruble is likely to create translational foreign exchange pressure.

Both Russia and Ukraine are important markets for IQOS, accounting for about 23 percent of PMI’s THP sales. PMI’s shipments of THP consumables in Russia increased from 13.6 billion units to 16.3 billion sticks in 2021 while shipments of cigarettes continued to fall. Considering Russia’s worsening economic outlook in the wake of international sanctions, however, a J.P. Morgan analyst doubted that PMI would still be able to achieve its next-generation product growth targets. Morningstar assumes that PMI’s write-down in case of a market exit could be approximately $7 billion, corresponding to 5 percent of the company’s market capitalization.

Ukraine and Russia combined accounted for 3 percent of BAT’s group revenue in 2021 and a slightly lower proportion of adjusted profit, the company said on its website. Morningstar estimates that the bulk of net revenue from these two countries, 2.5 percent, was generated by Russia, where BAT, according to Euromonitor, held 25 percent of the market in 2021. Employing some 2,500 people in Russia, BAT has a factory in St. Petersburg and 75 regional offices. Since the company entered the market in 1991, it has invested more than $1 billion in Russia. Morningstar reckons that the value of BAT’s operations will depreciate by around $2.2 billion, or about 2.4 percent of its market capitalization, as a result of its withdrawal from Russia.

Among the four players, Imperial Brands is a distant fourth, holding 8 percent of the Russian cigarette market. It operates a production site in Volgograd and has a workforce of 1,000. In 2021, the company said, Ukraine and Russia represented in total around 2 percent of net revenues and 0.5 percent of adjusted profits. Due to the limited profit contribution of the two markets, Imperial Brands explained it expected “a relatively small impact” on its constant currency adjusted profit.

Seeking a Backdoor

How the multinationals’ retreat will impact Russia’s illicit cigarette market is anyone’s guess. “It’s very hard to know how demand and supply of tobacco products will evolve in Russia given all that’s going on with sanctions, ownership of the industry and, presumably, local purchasing power,” says Fell. “I would certainly think that an increase in the size of the illicit market is a risk, and that’s also going to depend on how long this situation lasts.” Illegal cigarette sales represented 10.7 percent of the total Russian tobacco market in 2021, up from 4.6 percent in 2017, according to Statista.

Much will depend on how long the conflict continues. Considering the large amounts invested in Russia over the past 20 years, it’s safe to assume that cigarette manufacturers will do their best to minimize their losses. The companies have built strong positions in the Russian market, and there is demand for their products.

“I’d be surprised if any of the companies—not just the tobacco manufacturers—now exiting Russia are doing so in a way that would prevent their going back in the future, assuming that the war stops at some point, relations are normalized and reentry becomes conceivable,” says Fell. “But arranging that in a way which allows you to say you have exited the country for the time being is no doubt very tricky and is likely to be contributing to decisions taking some time to reach and to be implemented.”

Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

April 13, 2022

Tag: Imperial Brands

Following Russia’s invasion of Ukraine, tobacco companies to retreat from one of the world’s top cigarette markets.

Between a Rock and a Hard Place

Costly Exits

Seeking a Backdoor